There are a number of factors that determine the cost of an insurance policy. A cheap life insurance or income protection insurance policy doesn’t necessarily mean it’s an inferior one, and by the same token, the most expensive policy may not be the best to suit your needs.

The price of an insurance policy is generally a reflection of how the underwriter views the risk of you claiming on that policy. As each insurer will attribute their own measure of risk to each element of your lifestyle, personal habits and work situation, your overall risk profile can fluctuate between one insurer and another. An Insurance policy should NOT be selected based on price and should be evaluated on how it meets your personal situation and if there is anything specific you may want to cover. A Risk Specialist or Financial Adviser can help determine what insurance is most appropriate and how to best protect yourself and your family.Assessing risk when determining the cost of Insurance

One insurer can decide if you are a greater risk than others, which directly impacts the cost of your policy.

The underwriter determines your overall risk by examining a number of factors, such as your age, gender, medical history, current health status, whether you are a smoker or non-smoker, your occupation, and your recreational activities outside work.

Once you understand how many elements are involved in assessing an individual’s risk, it’s easy to see how insurers can arrive at a different figure when determining your overall risk profile as well as come up with several different outcomes such as:

Clean Skin/ Standard rates- You are deemed to have no significant health issues or need for further assessment as are covered by the terms stated in the Product Disclosure Statement and Policy terms.

Loading- Based on your Health assessment, the Underwriters have chosen to take on the risk of a prior health issue or condition you may suffer at a higher amount than standard rates which can result in premiums increasing from 25%- 150%

Exclusion- Based on your Health assessment, the Underwriters have chosen to exclude a specific or general condition from your policy meaning you cannot claim in regards to anything that happens as a result of your pre-existing condition. E.g You take Anti-depressant tablets on a regular basis and would like to go on stress leave and make a claim.

Decline- Based on the details in your Insurance Application, the Underwriter has decided that you are classified as too much of a High risk for the Insurer and unfortunately they are unable to offer you terms for a policy. Please be aware this now goes on your insurance file and will need to be disclosed to other providers.

Internal factors can influence the cost of your policy

From the insurer’s side, there are also a few internal factors that can affect the cost of your policy. Larger insurers may be able to offer a more competitive rate because of their economies of scale.

If you already have another policy with the same insurer, they may offer you a better rate on any additional policies you decide to take out with them or by holding multiple benefits and providing linking discounts.

Also, if a company specialises in a certain type of insurance, the volume of business they do in that specific area may mean they can offer a lower premium to their customers than insurers with a broader portfolio of products.

Risky activities can add to the cost

Recreational activities can also result in variations in insurance quotes from one provider to another, as each insurer will attribute their own level of risk to each particular pastime.

Risky activities such as scuba diving, skiing, skydiving, bungee jumping, and mountain climbing, may add to the cost of an insurance premium.

Just how much each activity will add to the overall cost of a policy will differ from provider to provider, so shopping around to find out who provides the most appropriate cover for your particular interests could help you find the most comprehensive cover for you.

Insurers tend to categorise risky activities into three areas:

• Speeds
  i.e. skiing, motorsport

• Heights
  i.e. skydiving, bungee jumping
• Depths
  i.e. scuba diving

There are some insurers who do not offer plans for those deemed to be high risk, whilst there are others who offer plans specifically for those who take part in those types of activities. If you take part in a potentially high-risk activity, check if the insurer considers it to be risky and if it’s something they will cover when you’re looking to take out a policy.

Further Information on your Life Insurance options can be found at ASIC’s Moneysmart website which can be found at https://www.moneysmart.gov.au/insurance/life-insurance

It’s important to ensure that any policy you take out meets your individual needs. If you’re unsure of how much Income Protection Insurance or Life Insurance cover you need, talk to us today and get on your way to being covered.  Our offices are located at Oran Park in the Oran Park Podium shopping complex on level 2 and we service the whole Macarthur Region. We also service the suburbs and surrounding areas of Parramatta, Penrith, Liverpool, Strathfield, Campbelltown and Sydney City. Please call us on (02) 9188 1547 or email admin@rpwealthmanagement.com.au